Paraguay Reclaiming Energy From Brazil in Franco Industrial Push

Paraguayan President Federico Franco said Brazil and Argentina will have to accept less
hydroelectric energy as the land-locked country develops its
industry and tries to accelerate development.

“We are no longer going to hand over our energy,” Franco
said in an interview yesterday at Bloomberg’s headquarters in
New York. “We’re going to develop internal markets, we’re going
to industrialize our country and Paraguay will no longer just be
a country that exports cattle and agricultural goods.”

Franco, the former vice president who took office in June
after Congress impeached President Fernando Lugo, said he is
seeking foreign investors to develop untapped oil fields, build
an aluminum plant and buy the country’s first global bonds. The
50-year-old leader said accomplishing that will require using
more energy from two hydroelectric dams on the country’s
borders, most of which is currently sold to its larger South
American neighbors.

A surgeon and father of four, Franco is looking beyond the
region for support as the country remains suspended from the
Mercosur trade bloc and the Union of South American Nations
following Lugo’s ouster. The world’s fourth-biggest soybean
exporter needs investors from Asia to the U.S. to help develop
its resources, while the Mercosur bloc it co-founded may have
outlived its usefulness, Franco said.

Aluminum Plant

Under a treaty with Brazil, Paraguay has the rights to 50
percent of the energy produced by the Itaipu dam yet sells most
of that to Brazil, Franco said. The country can boost its energy
use from the dam without renegotiating the accord, he said. Of
the 11 Itaipu turbines the country has the right to use, only
two are directed toward Paraguay, he said. The development of a
$4 billion to $5 billion aluminum smelter will require at least
one additional turbine, he said.

“Paraguay is preparing itself to use its energy and
develop the country,” he said.

Brazil, Latin America’s biggest economy, has depended on
energy produced by Itaipu for its industrial development. A 2009
blackout caused by the loss of transmission lines from the dam
plunged 40 percent of Brazil into darkness, affecting 18 of the
country’s 26 states. Replacing Itaipu’s energy entirely with oil
would require 536,000 barrels per day, according to the dam’s
website.

Argentina and Paraguay agreed in January to boost
investment in the Yacyreta dam, which helps power the industrial
core around Buenos Aires, by 25 percent. About 15 percent of
Argentina’s energy needs came from Yacyreta in 2010, according
to the plant’s website.

Five-Year Plan

Jorge Samek, the Brazilian head of Itaipu, said Brazil has
sufficient energy for the next five years and that the country
supports Paraguay’s development.

“The Brazilian government has made all efforts to
industrialize Paraguay,” Samek said in an interview from
Curitiba, Brazilyesterday. “The Brazilian government wants
Paraguay to consume more energy.”

Oil production in Paraguay may begin as soon as December,
Franco said, while shale resources await exploration and
development. The search for investors includes the sale of $550
million in bonds by mid-January as the country seeks to tap the
lowest emerging-market borrowing costs on record, he said.

Zambia, Bolivia

Paraguay joins emerging-market countries including Zambia
and Bolivia in seeking to take advantage of record-low yields by
raising funds overseas. The yield on emerging-market debt fell
to a record 4.71 percent on Sept. 11 and was at 4.77 percent
yesterday, according to JPMorgan Chase & Co. EMBI Global
indexes. Angola, which shares Paraguay’s BB- rating from
Standard & Poor’s, sold $1 billion of debt in the form of loan
participation notes due in seven years to yield 7 percent in
August for its first international issue.

S&P removed Paraguay from a negative credit-watch on Aug.
29, saying the political turmoil in the country from Lugo’s
ouster would have a “limited impact” on the economy.

The political crisis will have a direct impact on Franco,
who under Paraguayan law won’t be eligible to run for re-
election next April. He said he’ll throw his support behind
Senator Efrain Alegre’s candidacy in the race.

Franco said Paraguay felt mistreated in the Mercosur trade
block by its bigger neighbor and that he couldn’t worry about
the implications of his plans on Brazil and Argentina.